Abstract

We use product-specific wholesale and retail prices to study bargaining power. We focus on two dimensions of the bargaining between coffee manufacturers and supermarkets in Chile: (1) the share of total profits each player earns, and (2) the risk exposure to cost shocks each player bears. We find that Nestle, who accounts for almost 80% of the market, obtains 70% of the total profits. Surprisingly, small manufacturers obtain between 30% and 50%. Our estimates suggest that low consumer substitution can offset market size in terms of bargaining power. Regarding risk exposure, we find that most cost shocks are absorbed by the upstream manufacturers, where small manufacturers bear more risk than larger players. Supermarket's pricing strategies also appear to play a role in the risk-sharing outcomes.